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Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?

Fabien Roques (), William Nuttall (), David M Newbery (), Richard de Neufville and Stephen Connors

The Energy Journal, 2006, vol. Volume 27, issue Number 4, 1-24

Abstract: High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific characteristics making nuclear power unattractive to merchant generators in liberalized electricity markets, and argues that non-fossil fuel technologies have an overlooked option value given fuel and carbon price uncertainty. Stochastic optimization estimates the company option value of keeping open the choice between nuclear and gas technologies. The merchant option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether merchant investors have adequate incentives to choose socially efficient diversification in liberalized electricity markets.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2006
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Working Paper: Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices? (2005) Downloads
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